FNCE 344 – INVESTMENT PLAN
Create three separate mutual fund investment portfolios for the clients and their objectives indicated below. Make sure you explain “why” the mutual funds you are recommending are suitable to the clients profile and objective(s). You should also make reference to the fund performance, risk, fees, and any other relevant facts that support your fund recommendations. The plan should be typed 12pt font double spaced and you need to include a print out and/or summary of each fund you are recommending along with specific dollar amounts that will be allocated to each fund. Prepare the written presentation as though you are presenting it to an actual client.
This client has just inherited $500,000 from a deceased grandparent and wants to invest the proceeds in mutual funds. His name is Nick Henning and he is 35 years old. He has a good job and earns $70,000 per year working as a property manager so his primary objective is to invest the funds for his retirement and he would like to achieve long term average annual compound returns of 8% or better. He risk profile is moderate to high and the maximum downside risk that he can tolerate is 25% in any one year. He would like to retire at age 55 if possible. His investment knowledge is low.
Required: Create a mutual fund portfolio for him that uses at least four different mutual funds and provide justification for this portfolio (5 marks). You should also provide a retirement projection showing the future value of the portfolio at his age 55 based on expected returns (2 marks). He also has $70,000 in unused RRSP contribution room and he would like to take advantage of this room and start an RRSP with some of the funds. He currently has no funds in his RRSP. If he wants to maximize his tax refund should he allocate the full $70,000 to his RRSP in one year or is there a better solution? What is his marginal tax rate? (3 marks)
This retired client, Jane Riemann, age 55, wants to put $2,500 per month into an RESP for her grandson, Todd, who was born September 8th, 2016. It is expected that Todd will use the funds to go to University at age 18. Jane’s investment knowledge is medium and her risk tolerance is high as she wants to achieve as much growth as possible.
Required: Determine the future value at this RESP at Josh’s age 18 and create a mutual fund portfolio that is consistent with a growth objective and a long term investment horizon (6 marks). Jane also wants to know what will happen to the plan if Todd does not attend a qualifying post secondary institution (3 Marks). Also, is the RESP tax advantaged in any way? (1 mark).
This client, Ms. Sunderland, is recently retired and has $1,000,000 in redeemable term deposits. She wants to generate an income of at least $60,000 per year from these investments and the best rate she can get on a five year term deposit is 2.0%. She is currently 60 years and expects to live to age 90 given that her mother is still alive at age 93. Her risk tolerance is low to moderate and her investment knowledge is low. These funds will be non-registered.
Required: Create a mutual fund portfolio with at least six different mutual funds (5 Marks). How much income could you pay Ms. Sunderland assuming she only lives to age 90 and has no plans to leave any funds to her estate? (2 Marks) She also wants to know how the different types of investment income are taxed (3 Marks).